Sort of proprietary. Local implemented this using the auto-prepend-file feature in PHP:
@Jacob: Local is using the PHP.ini auto_prepend_file setting to prepend a PHP file that sets the WP_ENVIRONMENT_TYPE constant.
PHP: Description of core php.ini directives - Manual
Local does scan a site’s php.ini in case you are manually adding that setting. If a site is manually adding something in this way, then it’s important to note that Local won’t be able to automatically prepend this constant, and so certain things won’t work as intended.– Canny
There’s been some great feedback around this implementation, with one of the main pain points being Xdebug’s step-debugger: